In my pursuit towards financial freedom, I have been able to narrow down my goals and realize key elements that I want to focus on for my career and life style.

I have now managed to categorize and budget my expenses, long term and short term savings accounts, and I have begun to understand tax rules and how they affect investment accounts and options.

Nonetheless, I still find it difficult to determine the order and priority to assign to saving, paying off debts, investing, and business start ups.

There are so many competing philosophies on this topic, and I believe that there truly is not any one answer. Most advisors and financial ‘gurus’ will base their recommendations for you based on your risk tolerance, age and stage in life, and other factors. Lately, many advisors are much more conservative in their recommendation that you save and save and save your money for emergencies.

Here’s a look at what our short term plan is to balance all of these categories:

Save

Short Term Savings for Spending: I am doing a better job of setting aside small amounts towards short term savings goals including a wedding gift fund, a car maintenance fund and a tuition fund for my husband’s college.

Long Term Savings: We also are saving towards longer term savings goals such as our contingency fund, software business expenses and my daughter’s education fund.

Pay Off / Reduce Debt

We are selling out house in an effort to reduce our debts and get to a level where we are more comfortable with our savings options. It hasn’t sold yet though (bummer!). I’m also looking forward to renting and not owning for a while so that we have a bit more flexibility with where we live.

Besides this, I used some of our tax refund to go towards our car loan. One of our goals is to pay off our 7 year car loan in 1.5 years. That will involve some aggressive payments. According to the calculator I used something like paying $150/month more than what we owe. I am considering setting up a bi-weekly payment also for this to help reduce the balance and interest paid. This will allow us to begin paying off our new student loans for my husband’s college expenses. They aren’t huge, but we’d like to be able to make that transition. So, paying off the car loan debt is definitely a focus for us.

Invest

I invest in my 401k, but it mostly depresses me to follow it. No matter how I allocate it, it vastly under peforms the S&P 500 index fund.

Beyond that, I am in the process of transitioning my Traditional IRA to an online brokerage. I also am opening up a Roth IRA, but realistically won’t be able to contribute to it until our home is sold.

I’ll be moving my daughter’s certificate to a 529 College Invest plan in April.

Building Businesses

I don’t plan on building just one business, I plan on having multiple, including the consulting business that I already operate. I want to focus my efforts on business opportunities but once they are developed and running well, I would like to diversify and branch into other businesses (hopefully product based) for multiple income streams. This is not an overnight thing, but I firmly believe that this is possibly the most valuable thing I could be spending my time and some amount of investment on. Plus, I think this is what America needs right now. More start up small businesses, more entrepreneurs to get things moving.

As much as I am happy to be making efforts in many financially-savvy categories, I do still struggle with balancing and prioritizing them. I’d love your insight on this.

photo by calliope

Random Posts

One of the things that many of the financial gurus tell you is necessary to reach financial freedom is to be able to free your mind from the fear and worry you feel about the future. It would be nice if we could control our future, but its very difficult to do because of all of the unknowns and external factors. Without control, comes uncertainty. With uncertainty, often comes fear and worry.

The realities of adult life have left me with more responsibilities than I originally knew I signed up for, and it makes it rather difficult to find peace. Nonetheless, I am finding inspiration and making much more conscious decisions with my money and choices since I started this blog. In order to confront my largest fears, and give myself a chance to push past them, I’m documenting them below.

My 2 Financial Fears

Here are my greatest financial fears around making a dramatic life-changing choice that I want to do, but tell myself is foolish:  ‘what if I were to drop everything, reduce or stop paying some of my obligations and responsibilities, be with my daughter more and pursue an entirely entrepreneurial career’:

1. Fear #1 – I would hurt my credit score. I’m not actually afraid of the concept of foreclosing on a mortgage or losing my house. I know that I will always have the means, family and friends if we ever needed somewhere to live. I am afraid of the long-term implications of running out of money and impacting your credit score. I don’t want a short period of time in my financial life to affect my ability to borrow and get ahead in the world. So, there it is, this very realistic fear is what I believe cripples many people into paying down their debts before taking care of their true desires and their dreams. The fear of breaking the rules of the system stop many of us from doing what we truly want to do with our lives.
2. Fear #2 – I would lose my health insurance coverage. This year, we switched from my company’s HMO to the HDHP because of costs. Though it may sound nice, it really is bothering me already. My husband is avoiding going to the doctor for something, even though we pay hundreds a month for health insurance, because we don’t want to pay another $150 out of pocket with the risk that he will have a virus and not be given any medication anyway. HSA’s definitely do force you to think twice about going to the doctor, but this may not always be a good thing when you are ill. I am interested in looking into alternative and more preventative health and nutrition options, such as eastern practices, certain foods and herbs, etc, but sometimes you need American medicine and care. Many American’s are literally losing everything because of their health expenses. I had a client tell me that she was going bankrupt because of her medical bills. She was previously a very successful, wealthy woman. What has this world come to? I’m sure many people feel the same way, and I’m not certain if it will actually get better with the changes they are making D.C. I would be afraid to have another child because of the costs that I would incur in medical bills if I didn’t have health insurance coverage. And even then, it costs thousands to add a person to your family (unless you are really poor and can get help from the government).

That’s about it.  Those are the two scariest things for me. I’m pretty sure I could live in a trailer, and eat cheaply for a while if it meant that I was able to spend time with my daughter and pursue my dreams. But I am afraid of the immediate implications, and because of this, I currently have to make a choice to take things slower than I want to. Ah well, baby steps are better than no steps at all. My life is run by the rules of taxes, debt and inflation.

What About the Fear Driven “Emergency Fund”?

I’ve been reading a lot that most people recommend having 6-8 months of expenses saved before you ever do anything dramatic such as pursue an entrepreneurial endeavor. (We have a small one, about 2 months bills worth). The part of this concept that I struggle with is that the premise of this fund is based on fear. It may be a justified fear, but it is still a fear nonetheless. Will you be thankful that you had this fund set aside in times of need? Quite possibly. Yet there is also the flip side in which you may not take the necessary steps that you want to take with your life, because you are so consumed with a fear of the unknown and of having enough to pay your bills. Maybe a well-educated investor would at least put some of this contingency money into a somewhat liquid, but higher paying asset. Or diversify in multiple types of assets. Or spend in on your business venture that you want to start…? As Americans, the only way to get out of a recession/depression is to face our fears, and start doing, not just saving.

So, here’s my thought for anyone feeling afraid, desperate, or just plain stuck (a word I am very much trying to get out of my vocabulary, yet there it is again): Acknowledge your fears, but do something anyway. Nothing dramatic, just something. Read a new book, try something new. Turn off the TV and sit down and write about what it is you want, your goals and your dreams. Focus on what you want, to the point where you can visualize and see it, and you will start to set the forces in motion for change. Change doesn’t always happen quickly, but it does happen.

What are your greatest financial fears? Do you think they are based on reality or possibly just in your head?

Related Posts

• December 21, 2009 -- Be the Change You Want to See in the World
• November 24, 2009 -- Review of Free Credit Score Analysis Tool: Credit.com
• November 23, 2009 -- Review of Free Credit Score Analysis Tool: Credit Karma
• November 20, 2009 -- Simple Approach to Change: Assess, Aquire and Apply

Credit.com Offers a Different Perspective from CreditKarma.com

Credit.com offers an additional resource that can complement your use of CreditKarma.com (read my review) or other credit report services.

Though Credit.com doesn’t offer as much detail or tools as CreditKarma.com, it did give me a higher overall score, which I found interesting. It ranked me as A to A- for all categories, where as on CreditKarma.com I had D in a few different categories such as length of open debt. From what I’ve read, the discrepancy is based on the recency of the data as well as which credit agency it is using to determine your score, and supposedly CreditKarma doesn’t go back in date as far as Credit.com does.  This factor alone is enough to take a closer look at Credit.com for accuracy.

Rating: 3.5 out of 5 stars

Credit.com determines your score to be based on the following categories:

• Payment History (35%) Simply put - you have to pay your bills on time.
• Debt Useage (35%) Keeping low balances and having higher limits for your debt increases this value.
• Credit Age (15%) If you have accounts that have been opened for a while, this helps this score. (CreditKarma and Credit.com have very different perspectives on this)
• Account Mix (10%) Types of debt that you have (mortgage, credit cards, other loans)
• Inquiries (10%) Its a good idea not to have too many inquiries to your score (I’ve read that if you shop around, say for a mortgage, and have multiple pulls of your credit in a 2 week period, this doesn’t affect your score as much, but don’t quote me on this)

Keep in mind that for the full detail on actual accounts that are included on your credit report you’ll have to purchase one or get your free annual report. Under the FACT Act you are required to have access to at least 1 free credit report a year, and you can get that at http://www.annualcreditreport.com. This looks at the three major credit bureaus, Equifax, TransUnion and Experian. They will also report on court records for lawsuits, judgments and bankruptcy filings.

You can also possibly obtain your free credit report from your local credit union. The one I work at in Boulder provides a review of your credit report free to its members.

Its always a good idea to check your credit report, if at minimum to monitor and ensure that you don’t have any fraudulent activity. Also though, to learn how to improve it as I am.

Here’s a nice comparison: http://www.consumerismcommentary.com/2009/09/30/credit-report-cards-credit-com-vs-credit-karma/

What do you use to monitor your credit score and credit report? Do you use a credit monitoring or  identity theft service?

Related Posts

• November 23, 2009 -- Review of Free Credit Score Analysis Tool: Credit Karma
• January 21, 2010 -- My Greatest Financial Fears Explained

Think Twice Before You Cut Up Your Old Credit Cards

A Truly Free Credit Score and Helpful Analysis of the Factors Affecting Your Credit

Unlike many of the ‘free’ credit score sites out there that say they are free, Credit Karma truly is free.

Credit Karma provides secure access to your credit score with many features that help you analyze how your debt and payment has affected your overall score.

Rating: 3 out of 5 stars

Not only does this tool provide you with your credit score, it shows you:

• A Report Card of the factors that affect your score and where you fall
• Your score and how it shifts over time with charts and graphs
• A snapshot of where your score is compared to the national average
• A comparison of your credit to other members of the Credit Karma community
• A credit simulator that suggests how changes will impact your credit score (My score went up 8 points if I added a new credit card with a 3500 limit, crazy!)
• They also have helpful debt calculators such as mortgage affordability, debt payoff calculators, etc

What I found most interesting was the section called “Report Card”. It ranks certain criteria that is used to determine your credit score from A through F. It was very helpful for me, because I realized something critical in the way I have been managing credit cards and how I will manage them moving forward.

I have to admit, I was one of the typical college students that fell prey to the open 3 or 4 credit cards during the freshman orientation. I didn’t spend a lot on these cards, but when I wised up, I took the advice of someone that I should close any cards that I’m not using as that negatively affects my credit. So, I’ve been doing that over the years. When I don’t want a card any more, I close it. WRONG!

It turns out I have a “D” score on my credit score (which is overall “good” right now at 729) for Average Age of Open Credit Lines as well as Total Accounts. I’m very intrigued by the fact that doing something as simple as keeping some of my unused credit cards open will improve my credit score. I had NO idea. And as such I always close old cards that I’m no longer using.

Another thing I found interesting was that if you opened and did a balance transfer, with the simulator your score went down. However, if you just open a new credit card, your score goes up. I suppose this is because it indicates that you can handle more debt.

I highly suggest trying this tool out, if you are willing to overlook the offers and sales pitches on the page, it is a great way to actively monitor and improve your credit score.

Related Posts

• November 24, 2009 -- Review of Free Credit Score Analysis Tool: Credit.com
• January 21, 2010 -- My Greatest Financial Fears Explained